CEO's Total Wealth Characteristics and Implications on Firm Risk

Timo Korkeamäki; Eva Liljeblom; Daniel Pasternack

doi:10.1111/irfi.12139

CEO's Total Wealth Characteristics and Implications on Firm Risk

Timo Korkeamäki^*, Eva Liljeblom, Daniel Pasternack

^*Corresponding author for this work

Not published at Aalto University

Research output: Contribution to journal › Article › Scientific › peer-review

1 Citation (Scopus)

Abstract

We study the connections between firm risk and the CEO's personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO's tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk-averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the connection between CEO wealth characteristics and firm risk.

Original language	English
Pages (from-to)	35-58
Number of pages	24
Journal	INTERNATIONAL REVIEW OF FINANCE
Volume	18
Issue number	1
DOIs	https://doi.org/10.1111/irfi.12139
Publication status	Published - 1 Mar 2018
MoE publication type	A1 Journal article-refereed

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10.1111/irfi.12139

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